Japan has had its share of economic challenges for well over
a decade. These days it seems that most of the news from Japan is more negative
than positive, and it is easy to forget that Japan remains one of the largest
economies in the world.For Japanese
business people the country’s strong currency can be problematic when it comes
to exports but can also be an opportunity when considering overseas investment.For those interested in doing business with a
Japanese investor, joint ventures are an attractive option because compared to
M&As, forming a multinational joint venture is generally less risky. Besides
corporate and tax laws, there are two areas that have been often updated or
amended: 1) the Personal Information Protection Act; and 2) Japan’s Labor and
Employment Laws. These areas can easily trigger oversight in joint venture
transactions, and it is important for an attorney involved in joint ventures involving
a Japanese company to understand these provisions.

­­­­­­­­­­­­­­­­­­­­­­­­Personal
Information Protection Act (“PIPA”)

The PIPA came into effect on April 1, 2005. The Act requires
that entities manage and protect the privacy rights of Japanese citizens while permitting
personal information to be used for legitimate business purposes.

Personal information means a person’s name, date of birth,
and other information that enables identification of a living individual. For example, it includes records in an electronic address
book, business cards, marketing lists, and email messages displaying names and
email addresses. Images of an individual can also be considered personal
information.

The PIPA applies to government, private entities or business
operators handling personal information. However, persons and entities who
handle the personal information of less than 5,000 individuals and ordinary
private use of personal information are exempted from the requirements of the
Act.

Under the PIPA, a business operator handling personal information
must specify the purpose of utilization and is obligated to promptly notify
each individual of the purpose of utilization upon receiving personal
information, unless the purpose of utilization has been publicly announced. The
business operator cannot use acquired information for any purpose beyond the
scope of their purpose of utilization without prior consent by the individual.
Similarly, the PIPA limits entities’ ability to transfer such personal
information to a third party without prior consent.

Violation of the PIPA can result in administrative
penalties, ranging from a fine of not more than 300,000 Japanese yen (approx.
USD $3,912.62) to imprisonment for up to six months. A company will be held
liable for a fine when its representative, agent, employee, or any other person
engaged has violated the PIPA. Liabilities could also be extended to individual
employees of a company.

Labor
and Employment Laws

The Labor Standard Act (“LSA”) was
enacted in 1947 and, the most recent amendment came into effect on April 1,
2010. In this recent amendment, changes in overtime pay are highlighted. The
amended Act sets out additional requirements for compensation and requires that
employees must be paid at 150% of their standard rate if the accrued overtime
within any given month is over 60 hours. Before the new requirement, the
overtime pay rate was 125% of the employees’ standard rate regardless of the actual
number of accrued overtime hours. The amended Act further reinforces the
original requirements for overtime pay by mandating that the employees need to
agree to the compensation and overtime pay if their accrued overtime is over 45
hours in any given month. Other provisions regarding over overtime pay
requirements remain effective, including the pay requirement regarding unusual
working hours. For example, employees are entitled to receive 160% of their
standard rates, if they work between 22:00 and 5:00 (“Night Shift”), and they
must be paid at 175% of their standard rates if the hours of the Night Shift reach
over 60 in any given month.

The Employment Contract Act (“ECA”), a new law, came into
effect on March 1, 2008. There is no concept of “at will employment” in Japan
and the employers’ rights to terminate or discipline employees are limited.
However, the concept of a monetary resolution system for dismissal of employees
was contemplated in the Act due to the recent increase in the number of cases
arising from wrongful termination claims. The main provisions of this Act are:
1) employment contracts need to be executed or amended by mutual agreement of
an employee and an employer; 2) employment contracts need to be confirmed in
writing to the extent possible; 3) terms and conditions of an employment
contract are invalid if they are unfavorable to an employee and are contrary to
the employment policy 4) any relocation or transfer is invalid if such
arrangement is considered an abuse of the employer’s rights; 5) dismissal and
disciplinary actions are invalid if such decisions are unreasonable; 6) a fixed-term
employment contract may not be cancelled without a compelling reason; and 7)
employers are required to give a contractor or a part time employee the
opportunity to apply for a full time position when hiring a new full time
employee.

Local laws such as these are often unexpected and
consequently can create unnecessary stress in the course of negotiation.
Accordingly, it is crucial that lawyers involved in joint ventures and their
clients understand the costs and risks associated with the compliance of these
Japanese laws as early as possible in order to avoid potential costly
surprises.

*This article was published by American Bar Association International Law Section in October, 2011.

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井上奈緒子

Naoko Inoue Shatz is a U.S. lawyer who has extensive business experience in Japan, and she has a wide range of practice experience involving cross border matters and legal disputes between U.S. and Japan. Her dedication and responsiveness in addition to her experience has often helped corporate clients quickly uncover challenging issues and develop a sound business relationship. 井上奈緒子は日本でビジネスの経験を持つ米国の日本人弁護士で、アメリカと日本の2国間にかかわる一般法務から法的紛争にわたって幅広い経験を持ちます。さらに専心さと対応力に関しても多くのクライアントから評価を得ており、国際商業取引業務においてクライアントとは確実な関係を築きあげてきています。Read More

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